CHICAGO — Chicago plans to sell about $175 million of general obligation bonds next month to provide an infusion of funding for school building projects at the cash-strapped Chicago Public Schools to help keep its long-term $5 billion capital program on track.
The City Council Wednesday approved the financing that marks the second and final borrowing by the city under the $1 billion Modern Schools Across Chicago program announced by Mayor Richard Daley in 2006.
Samuel A. Ramirez & Co. is the senior manager and Jackson Securities LLC is the co-senior manager.
The program taps tax-increment financing revenue to pay for school building projects located within existing TIF districts.
“With this ordinance, we are making the financing of modern public schools a top priority for Chicago’s TIF program,” Daley said a statement. “We want to ensure that schools are built first, as they provide the greatest impact on the revitalization of our neighborhoods.”
Chicago sold $350 million in 2007 to launch funding for the program that is also supported by matching funds from the Chicago Board of Education.
The system will have opened 11 new schools and completed three major renovations by the end of the year under the program. Proceeds of the upcoming issue will go towards financing for construction costs or improvements to Austin High School, Skinner Elementary School, Peterson Elementary School, and Brighton Park II Elementary School.
CPS officials are grappling with a roughly $600 million deficit due to rising teacher salaries and other costs, as well as a possible cut under the proposed state budget offered by Gov. Pat Quinn. As a result, CPS has not finalized fiscal 2011 borrowing plans.
“We will be borrowing later in the calendar year for our capital program but we are still working on the size given our budgetary pressures,” said schools treasurer David Bryant.
The district originally faced a $900 million deficit, but pension reform legislation approved by state lawmakers and signed by Quinn allows the district to forgo a portion of its pension payment over the next three years, trimming about $300 million off the shortfall.
The deficit includes a roughly $360 million reduction in state funding, though that cut appears unlikely. Quinn is pushing an income tax increase to offset an overall $1.3 billion in proposed education funding reductions to erase some of the state’s $13 billion of red ink.
While lawmakers have rejected the income tax increase, they are expected to avert any slash in school funding through other measures such as a proposed tobacco borrowing and cigarette tax hike.
The General Assembly adjourned last week without approving a budget but is expected to return before the end of the month to pass a spending plan.
The district is currently accepting proposals from financial advisers interested in working on transactions over the next two to three years. The district currently works with A.C. Advisory Inc. and Public Financial Management Inc.
Instead of selecting just one or two firms to keep on contract, the district will compile a qualified pool of firms and then select from among them on individual transactions or other advisory work, Bryant said.
The district’s $4.3 billion of outstanding debt is rated AA-minus by Fitch Ratings, Aa2 by Moody’s Investors Service, and AA-minus by Standard & Poor’s. The outlook on all the ratings is stable.
The city’s $6.5 billion of GOs are rated AA-plus with a negative outlook by Fitch, Aa2 with a stable outlook by Moody’s, and AA-minus with a stable outlook by Standard & Poor’s.
The City Council also this week approved the city’s annual GO tender note sale to provide cash-flow help to the Chicago Public Library system as it awaits its share of property tax revenues.
The city plans to issue up to $80 million of two-year notes in June. BMO Capital Markets is the senior manager and Grigsby & Associates is co-manager.